Crude Oil Price Sustains Losses On Planned Opec's Output Rise

Oil prices fall as top three producers look to boost supplies

Scott Davis
|
30 May, 2018, 18:34

The West Texas Intermediate for July delivery fell 1.15 US dollars to settle at 66.73 dollars a barrel on the New York Mercantile Exchange, while Brent crude for July delivery added 0.09 dollar to close at 75.39 dollars a barrel on the London ICE Futures Exchange.

USA production continues to grow and exports are also set for a further increase: June shipments are projected to hit 2.3 million bpd, of which 1.3 million bpd will go to Asian buyers.

"Oil prices are showing symptoms of a falling knife as investors are jittery on the prospect of increased production from three of the world's top producers", Singapore-based brokerage Phillip Futures said on Monday. Venezuela is now producing just 1.4 million barrels a day, down from 3 million barrels a day just a few years ago, while UBS AG Wealth Management forecasts a drop of about half a million barrels day from Iran.

Crude oil prices sustained losses yesterday with the price of United StatesWest Texas Intermediate (WTI) crude oil tumbling almost three per cent, on worries that Saudi Arabia and Russian Federation could pump more crude oil to compensate for a potential supply shortfall, with hedge funds reducing bullish positions in crude oil.

Monday May 28 saw another price tumble for oil prices, after crashing down last Friday.

As Russia and Saudi Arabia deliberated on an increase in oil output of 1 million/bpd to offset supply reductions from Iran and Venezuela, Brent crude prices fell to $75.34 a barrel, down nearly 6 per cent from the peak of $80 reached earlier in May. However, the existence of these risks mean that oil prices are likely to remain volatile, witnessing periods of spikes should any of these risks escalate.

US West Texas Intermediate crude was down $1.05, or 1.55%, at $66.83 a barrel, sitting around its lowest since 17 April.

China has also raised concerns about whether enough oil is being pumped, according to a Saudi statement issued after Energy Minister Falih called China's energy chief on Friday to discuss cooperation between their countries and to review the oil market.

The Organization of the Petroleum Exporting Countries (Opec) is due to meet in Vienna on June 22.

"The market was not prepared for Opec to get ready to return supply that soon", said Jens Naervig Pedersen, a senior analyst at Danske Bank A/S in Copenhagen.

Those constraints will take years to fix, but in the meantime one way to close those tempting spreads and nip such investments in the bud would be to dump some more oil in the non-US market commensurate with the amount coming out of the Permian. Domestic oil production is at an all-time high of 10.7 million bpd, not far from Russia's.

OPEC, led by Saudi Arabia, had largely dictated the oil price in the past. USA crude CLc1 was up 40 cents at $67.13. The current rig count globally is now above the average that was set in 2017.

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